Meanwhile, Statistics Canada reported that building permits rose beyond expectations in January -- particularly in the condo market -- signalling continued strength in the multi-family dwelling category.

CMHC said the seasonally adjusted annual rate of housing starts increased to 229,737 units in February, up from 215,260 in January.

Economists had expected the rate to come in at 216,600, according to Thomson Reuters. Housing starts are considered a leading indicator of how the economy is performing.

"Starts are being boosted by a relatively firm economic backdrop, healthy population growth and past gains in pre-construction sales in Toronto," Sondhi wrote in a report.

"However, February's increase was driven by the volatile multi-unit sector, leaving some scope for reversal in March."

Sondhi noted that while the pace of starts has held up so far this year, TD expects that cooling demand in the face of restrictive policy measures and higher rates will ultimately slow starts going forward.

New mortgage rules this year mean federally regulated lenders must subject homebuyers seeking uninsured mortgages to a stress test to ensure they can continue to make payments even if rates rise.

The overall increase in housing starts for February came as the seasonally adjusted annual rate of urban starts increased by 7.1 per cent in February to 211,211 units.

Economists had expected the value of building permits to increase 1.3 per cent, according to Thomson Reuters.

The increase was due in large part to permits for multi-family dwellings in Ontario that rose 71.0 per cent or $404.3 million to $974 million in January, more than offsetting the 39.7 per cent drop reported the previous month.

Overall, residential permits climbed 5.9 per cent for the month to $5.32 billion, while commercial building permits gained 8.9 per cent to $1.7 billion and institutional permits increased 19.2 per cent to $834.9 million.